…H1’06 profits help revise targets
Hellenic Bank Pcl (HB) beat analyst expectations delivering a strong set of first half profit amounting to CYP 15.3 mln compared to CYP 794.000 a year ago in the same period, helped in part by CYP 4.2 mln in profit from derivative positions taken on Cyprus pound and euro rate convergence, which are non-recurring.
Analysts had forecast CYP 13.5-13.8 mln in first half profit while the Market Talk editorial team of the Financial Mirror had forecast first half profit at CYP 14.5 mln, the closest to the actual figures.
Hellenic Bank CEO Makis Keravnos said based on the spectacular performance, the Bank had revised its Return on Equity (ROE) target for 2006 to 13% from 11%, while the cost to income ratio target for 2006 has been lowered to about 65% from 69% made earlier in the year.
“The spectacular performance was achieved because of our ability to boost income by 25% while restraining cost increases to 2%,” said Keravnos, who earlier in the year had promised shareholders during an interview with the Financial Mirror that such a strategy would eventually close the profit growth gap between HB and its peers.
More details on the future direction of the Bank will be made during the presentation of the Strategic Plan of the Group, which was approved by the Board. The three main pillars of the Strategic Plan are to achieve sustainable profit growth, boost business while at the same time improving the quality of service on offer.
Total income jumped 25% YoY to CY{P 70.95 mln from CYP 56.9 mln a year ago in the same period, with net interest income up 12% YoY at CYP 12.9 mln, income from derivative and other trading up 263% at CYP 8.8 mln (of which CYP 4.2 mln are the interest rate related non-recurring profit) and profit from other sources up 13% at CYP 4.02 mln.
The net interest margin improved to 2.94% from 2.82% end of March ’06, but in view of fierce competition in the market is expected to decline slightly. End of 2005, the net interest margin was 2.86%.
Derivative gain
HB Group Financial Controller George Appios in response to a question by the Financial Mirror said the CYP 4.2 mln profit arose from a position taken at the start of the year on the expectation that Cyprus pound rates would converge with those of the euro. Even though he called it a hedge, but shareholders no doubt will welcome the aggressive positioning of the Bank, which helped boost bottom line profit.
Results were helped by CYP 1 mln in profit from share of profits from Athena Cyprus Investments (ATH) and CYP 1.08 mln from sale and revaluation of investments.
Costs under control
Total costs were up 2% YoY to CYP 42.8 mln from CYP 41.82 mln in H105 with staff costs up 6% to CYP 29.8 mln because of staff voluntary redundancies and pay increases. Other costs fell 6% YoY to CYP 10.9 mln from CYP 11.62 mln as the austerity programme enforced by Makis Keravnos, whereby unnecessary costs are cut started producing results. Depreciation costs were also 2% lower at CYP 2 mln.
The cost to income ratio end of the first half of 2006 fell to 60.3% including the non-recurring CYP 4.2 mln derivate gain, or 64.1% excluding the extraordinary profit. For the whole of 2006, the cost to income ratio is seen declining to 65% from 72.4% end of 2005.
Provisions decline
Results were further boosted by a 19% decline in the provision charge, which fell to CYP 11.56 mln from CYP 14.2 mln a year ago. Total provisions now amount to CYP 204 mln, while the total non-performing loans amounting to CYP 328 mln represent 11.4% of the gross loans of the Bank.
Appios stressed the big improvement in the coverage of NPLs to 68.8% from 61.3%.
Greece still bleeding
Net profit of Hellenic Bank Group for the first half of 2006 increased to CYP 15.29 mln from CYP 794k a year ago in the same period, with EPS up at 6.5 cent from 0.3 cent. In the second quarter, HB reported total profit of CYP 8.46 mln.
Cyprus operations contributed all of the profit turnaround, with profit at CYP 16.1 mln while the operations in Greece lost CYP 836.000 in the first half compared to a CYP 3.9 mln net loss a year ago.
Keravnos told the Financial Mirror that he is still confident that the operations in Greece will manage to break even for the whole of 2006. “That’s our target and we shall spare no effort to reach the break even point.”
Keravnos said the operations in Greece managed to boost income by 25% while costs increased by 4%, with the cost to income ratio in Greece declining to 83% from 106%.
Advances and deposits
Total advances increased 8% YoY to CYP 1.79 bln from CYP 1.65 bln with advances in Cyprus up 8% and in Greece up 16%. Total deposits were up 16% to CYP 2.75 bln from CYP 2.36 bln with deposits in Cyprus rising by 16% and in Greece by 12%.
Shareholders’ funds improved by CYP 17 mln to CYP 182.58 mln end of 2006 with the ROE for the first half up at 13% from 5% a year ago.
Tier 1 capital was CYP 179 mln, Tier 2 capital at CYP 96 mln with the capital adequacy ratio at 12%. Including the first half results, which are not audited, the ratio would climb to 13%.
